Stephen Crystal on Prediction Markets: The Fight Is Not New, But the Venue Is

SCCG founder Stephen Crystal was asked three questions by a reporter this week: whether the legal fight over prediction markets has any precedent in gaming, whether the valuations are justified, and where the sector eventually lands. His answers are below, lightly edited.

Is this legal fight new, or have you seen it before?

The shape of it is extremely familiar. The venue is not, and that is the part people are underestimating.

In 30+ years as a securities and gaming attorney I have watched this same argument run at least twice. Daily fantasy sports is the closest parallel. A product arrives, asserts that it is not gambling, scales nationally before any regulator has ruled, and then spends three years being litigated and legislated state by state. Nobody won that on a single court ruling. It ended in a patchwork of state statutes, and the operators who survived were the ones who assumed regulation was coming and built for it early.

What is genuinely new is the forum. Every previous fight of this kind was adjudicated by state gaming regulators and state attorneys general, on state gambling law. This one is being argued on federal commodities law, in front of the Commodity Futures Trading Commission and the federal courts, by companies holding a federal designation. The claim is preemption — that a federally regulated exchange listing a federally permitted contract is not answerable to a state gaming regulator.

Gaming has seen federal preemption before. That is essentially the architecture of the Indian Gaming Regulatory Act, and tribal nations have spent forty years litigating where the federal line falls. So the concept is not exotic. But applying it through a financial regulator, to a product a bettor experiences as a wager, is new — and it changes who has standing, which agency writes the rules, and crucially, which court hears the appeal. That is a very different fight from the one the industry is used to having.

I would add one thing the industry keeps getting wrong. This is not being decided only in courtrooms. The state legislators are organising. Whatever consensus forms among them tends to arrive later as model legislation, and it tends to arrive faster than litigation does.

Kalshi and Polymarket are raising close to $20bn. Justified, or hype?

Let me correct the premise gently, because the distinction matters.

Neither company is raising $20bn. They are raising something closer to $1bn each, at valuations in that range. Kalshi closed roughly $1bn in May at a reported $22bn valuation and is now reported to be seeking new money at about $40bn, possibly this quarter. Polymarket is reported to be in talks north of $20bn. Those are press reports of private rounds, not filings, so treat them as directional.

The more interesting number is that the gap between the two has widened rather than closed. Reported June volumes were about $31.5bn for Kalshi against about $10.8bn for Polymarket. The market is not splitting evenly.

Is it justified? Not on current revenue, and I do not think the investors are pretending otherwise. An exchange earns a small fee on volume. You cannot get to $40bn on fees from $31bn of monthly notional volume on any multiple I would sign my name to. So the valuation is not a bet on this year’s revenue.

It is a bet on the regulatory outcome. Specifically, it is a bet that these contracts survive as a federally regulated product available in all fifty states without a state gaming licence. If that holds, the addressable market is the entire US sports betting market plus everything sportsbooks cannot legally offer, with none of the state-by-state licensing costs — and $40bn will look cheap. If it does not hold, the same business needs licences in every state, takes the same tax treatment, and becomes an ordinary sportsbook with an unusually good technology stack.

So the honest answer is that these are not overvalued or undervalued. They are binary. Investors are pricing a legal outcome, and reasonable people are getting very different answers to that question. That is not hype. Hype is when nobody can articulate the thesis. Here everyone can articulate it — they just disagree about which way it resolves.

Where does this land? Gambling, its own thing, or something like crypto?

Not cleanly any of the three, and I would be cautious of anyone who tells you otherwise with confidence.

My expectation is that it ends up a federally regulated financial product carrying consumer protections borrowed almost wholesale from gaming. Age verification, self-exclusion, advertising limits, affordability checks, responsible-gambling messaging. Not because a financial regulator naturally reaches for those tools, but because the political pressure to apply them will be irresistible the first time a well-reported story appears about someone who lost badly on an event contract. The product will be regulated as finance and supervised, in practice, like gaming.

The crypto comparison is instructive but only up to a point. Crypto’s fight was about whether an asset was a security — a classification question about a thing. This is a question about an activity, and about which sovereign gets to say. That is closer to the tribal-state jurisdictional fights than to anything that happened to crypto.

Where I would push back on the framing is the assumption that it must land somewhere permanent. Gaming law does not really work that way. We are still litigating the boundaries of statutes written in the 1980s. The likeliest outcome is not a clean settlement but a durable, untidy equilibrium — federal designation for the exchanges, state-level consumer rules layered on top, and a decade of argument about the seams. Congress will eventually have to legislate, because neither the CFTC nor fifty state regulators can resolve this alone. I would not expect that soon.

For operators the practical advice has not changed in thirty years. Do not build a business that only works if the regulatory question resolves your way. Build one that survives either outcome, and treat the favourable outcome as upside.

Stephen Crystal is the founder of SCCG Management, which advises operators, suppliers, regulators and tribal nations across the gaming industry.

Valuation and volume figures cited above are drawn from published reporting of private fundraising discussions and are not confirmed by filings.